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Court of Appeal of Fiji |
IN THE COURT OF APPEAL, FIJI ISLANDS
CIVIL APPEAL NO.ABU0039 OF 2009
(High Court Civil Action No.153 of 2009L)
BETWEEN:
STRATEGIC NOMINEES LIMITED (IN RECEIVERSHIP)
Appellant
AND:
GULF INVESTMENTS (FIJI) LIMITED
OCEANIA INTERNATIONAL (NZ) LIMITED
OCEANIA INTERNATIONAL (FIJI) LIMITED
BAYLEYS REAL ESTATE (FIJI) LIMITED
Respondents
Coram: Hon. Justice Izaz Khan, Justice of Appeal
Hon. Justice William R. Marshall, Justice of Appeal
Hon. Justice Kankani T. Chitrasiri, Justice of Appeal
Date of Hearing: Friday, 17th September 2010
Counsel: Mr. N Barnes for Appellant
Dr. M S Sahu Khan for the 1st Respondent
Date of Judgment: Thursday, 10th March 2011
JUDGMENT
Izaz Khan, JA
William Marshall, JA
"Mr Brodie cited certain authorities which tended to establish that apart, no doubt, from a formal release, and so on, nothing would discharge a mortgage debt save the actual payment and acceptance of the of the sum due: see In re J.Defries & Sons Ltd. [1909] UKLawRpCh 98; [1909] 2 Ch. 423; and consider Henderson v. Arthur [1906] UKLawRpKQB 148; [1907] 1 KB 10, 13, 14; Graham v. Seal (1918) 88 L.J.Ch. 31; Halsbury's Laws of England, 3rd ed., vol.27 (1959), p.402 and Waldock's Mortgages, 2nd ed. (1950), pp.329, 330. To these may be added Bank of New South Wales v. O'Connor (1889) 14 App.Cas.273. I do not think that what was said in Bolt & Nut Co. (Tipton) Ltd. V. Rowlands Nicholls & Co. Ltd. [1964] 2 Q.B. 10 was intended to affect that position. Certainly the concept that the appropriation of an unliquidated claim to a mortgage debt by the mortgagor will effect a discharge nisi of that debt seems both novel and awkward. Unless and until the mortgage in this case is discharged in the appropriate way upon actual payment and acceptance of the sum due, I think that the mortgage remains a mortgage, and that the mortgagee is entitled to any surplus proceeds of sale in the hands of the bank up to the amount properly due under the mortgage. A doctrine of the discharge of a mortgage debt by the existence or unilateral appropriation of an unliquidated claim is one to which I give no countenance: I regard it as neither convenient nor just."
"I entirely agree with what he there says and, accordingly, I uphold the decision of the judge not to stay the action against the bank."
"But the proprietary rights as owners which the plaintiffs have are rights which are subject to and qualified by the rights over the property given to the defendant by the mortgage. If the defendant exercises the latter rights or threatens to do so that is not, as such, an act or a threatened act in contravention or infringement of the plaintiffs' proprietary rights".
"In my opinion the principles on which the Court has always acted do not permit the Court to intervene because of the existence of those claims, and I am of the opinion that I should not grant the application."
"The case falls fairly, in my opinion, within the general rule applicable when it is sought to restrain the exercise by a mortgagee of his rights under the mortgage instrument. Failing payment into court of the amount sworn by the mortgagee as due and owing under the mortgage, no restraint should be placed by order upon the exercise of the respondent mortgagee's rights under the mortgage."
"In the course of a very brief extempore judgment acceding to the bank's application, the judge apparently regarded the all-important proposition, conclusive of the case, as being: '... a mortgagor cannot appropriate a counterclaim, even if admitted, in discharge of the debt.' As authority for this proposition he cited three cases, namely Samuel Keller (Holdings) Ltd v. Martins Bank Ltd [1970] 3 All ER 950, [1971] 1 WLR 43, Mobil Oil Co Ltd v. Rawlinson [1981] 43 P & CR 221 and Citibank Trust Ltd v. Ayivor [1987] 3 All ER 241, [1987] 1 WLR 1157.
In the Samuel Keller case [1970] 3 All ER 950 at 953, [1971] 1 WLR 43 at 51, which Judge Phelan described as 'the major case', Russell LJ expressly approved a passage from the judgment of Megarry J in the court below, in the course of which it was said:
'A doctrine of the discharge of a mortgage debt by the existence or unilateral appropriation of an unliquidated claim is one to which I give no countenance; I regard it as neither convenient nor just. Even where there is a claim which is both liquidated and admitted, and it exceeds the mortgage debt in amount, it may be to the interest of one party or the other, or both, that the mortgage and the mortgage debt should continue in existence.'
The learned judge apparently regarded this as the principle governing and conclusive of the case."
"If then the mortgage does not itself restrict the bank's right to take immediate possession of the property as legal mortgagee, the defendants have to submit and do submit that these rights have been abrogated by virtue of the events alleged in the disputed paragraphs of their pleading. One formidable obstacle in the way of such submission is the line of authority which clearly establishes the principle that the existence of a cross-claim, even if it exceeds the amount of a mortgage debt, will not by itself defeat a right to possession enjoyed by a legal charge. I refer in particular to the decision of Nourse J in Mobil Oil Co Ltd v. Rawlinson (1981) 43 P & CR 221, the unreported decision of this court in Barclays Bank plc v. Tennet [1984] CA Transcript 242 and the decision of Mervyn Davies J in Citibank Trust Ltd v. Ayivor [1987] 3 All ER 241, [1987] 1 WLR 1157.
The principle in my view has much to commend it, since it could lead to abuse if a mortgagee were to be kept out of his undoubted prima facie right to possession by allegations of some connected cross-claim which might prove wholly without foundation: see and compare the observations of Russell LJ in Samuel Keller (Holdings) Ltd v. Martins Bank Ltd [1970] 3 All ER 950 at 953, [1971] 1 WLR 43 at 51. I will refer to the principle established by this line of cases as 'the Mobil Oil principle'. Mr Brock, however, has submitted that the principle is not applicable to the present case essentially on two alternative grounds. First, he submitted, that it is not applicable in a case where the cross-claims are not mere cross-claims but claims which would give the mortgagor rights by way of an equitable set-off.
I say nothing about the case where a mortgagor establishes that he has a claim to a quantified sum by way of equitable set-off. Possibly such a claim might have the effect of actually discharging the mortgage debt. In my judgment, however, the Mobil Oil principle is applicable both where the cross-claim is a mere counterclaim and where it is a cross-claim for unliquidated damages which, if established, would give rise to a right by way of equitable set-off. In none of the decisions mentioned has any distinction been drawn between the two. In the Mobil Oil case (1981) 43 P & CR 221 at 261 Nourse J referred in terms to the possibility of a counterclaim or set-off. Though there was no claim for possession in the Samuel Keller case the court did not find it necessary to advert explicitly to the possibility that the claim to damages on the relevant counterclaim might give rise to a claim by equitable set-off, as opposed to a bare cross-claim. Russell LJ said ([1970] 3 All ER 950 at 952, [1971] 1 WLR 43 at 50):
'It was argued that if the outcome of the Birmingham action was that damages were awarded on the counterclaim exceeding the amount due under the mortgage debt it would prove that [the mortgagee] would not have been justified in obtaining the money from the bank and treating it as their own to meet their mortgage debt. It was submitted that by reason of the counterclaim the mortgage debt no longer existed, but that, to my mind, is plainly not so and I so hold.'
I cannot accept the submission that the Mobil Oil principle is not applicable where the mortgagor has a claim to unliquidated damages by way of equitable set-off, and in my judgment it makes no difference that such a claim may in the event prove to exceed the amount of the mortgage debt."
"On being sued by the creditor for payment of the debt guaranteed, a surety may avail himself of any right to set off or counterclaim which the principal debtor possesses against the creditor, and any division of the High Court can give effect to it or to any equitable defence raised."
"However even accepting for present purposes the correctness of the general principle stated in Halsbury, that statement is expressed to apply in cases where the surety is being sued by the creditor for payment. We have been referred to no decisions establishing that it applies in cases in which a mortgagor surety is being sued by a mortgagee creditor for possession of the mortgaged premises, and I am not satisfied that it necessarily does apply. Secondly, and I regard this as the conclusive point in the present case, any rights which a surety would ordinarily enjoy at common law against the creditor by virtue of the Halsbury principle would in any event be capable of being excluded by agreement between himself and the creditor. The decision in the Hyundai Shipbuilding case itself shows that this is so.
In the present case cl.11 of the mortgage, so far as material, provided:
'...as between the Mortgagor and the Bank this Mortgage is to be deemed to be a primary security and the Mortgaged Property is to be deemed to stand charged with the moneys or liabilities hereby secured as if they were primarily due from the Mortgagor.'
In my judgment, as Mr Mann submitted, this provision makes it clear that, in any dispute between the bank and the mortgagors, their obligations as mortgagors, including their obligations to deliver up possession when called upon to do so, are to be no less extensive than they would be if the debts in question were due from them as primary debtors rather than as mere guarantors. In particular this provision, in my view, makes it clear that in any dispute between the bank and the mortgagors it is not to be open to the mortgagors to rely upon any right of cross-claim or set-off to which the principal debtor, the company, may be entitled as against the creditor bank."
"3.1 Liability as sole principal debtor
As between each Guarantor and Strategic (but without affecting the obligations of the Debtor) each Guarantor is liable under this Deed in relation to the Guaranteed Indebtedness as a sole and principal debtor and not as a surety."
In the mortgage deed under the obligation "To pay" the mortgagor assumes liability under 2(a) to pay all under the Deed.
"But the proprietary rights as owners which [the mortgagors] have, are rights over the property given to the [mortgagee lender] by the mortgage."
Therefore, in context, the mortgagor has no proprietary rights or other established legal rights able to be protected by a quia timet interim injunction. Also in Inglis in the passage cited in paragraph 16 above, Walsh J states in terms that the policy of the courts has always been to prevent the lender/mortgagee being stopped or delayed in realising the security. Given the commercial importance of charges and mortgages to lending by banks and financial institutions this policy of the Courts is essential. The continuing policy of the Courts is that liquidity in realising mortgage securities should not be undermined.
35. In the High Court Mr Justice Inoke said at paragraph 25:
"The decision of the High Court of Australia in Inglis was delivered in 1972 before the House of Lords decision in American Cyanamid [1975] UKHL 1; [1975] AC 396 and I wonder if Inglis would have been decided differently had American Cyanamid been decided before it."
36. Neither side had laid before the learned judge any of the continuing line of cases culminating in National Westminster v. Skelton (supra) reported in 1993. It is true that the American Cyanamid case was decided in 1975. But in the Samuel Keller line, Mobil Oil Co. Ltd v. Rawlinson was decided in 1981; the Citibank Trust v. Ayivor case was decided in 1987; finally National Westminster Bank v. Skelton was decided in 1993.
37. Because there are no relevant proprietary interests or other legal interests in place and because the policy of the law is 'no restraint' none of these cases even mention American Cyanamid and the quia timet interim injunction principles. But in Fiji the only case ever cited in the Samuel Keller line is Inglis. The later cases in the line were not before the Fiji courts in any of the cases discussed above such as Naigulevu. This has lead to the introduction of, in a wholly inappropriate context, American Cyanamid principles. At least in the earlier Fiji cases Inglis has been, after much irrelevant discussion followed. I believe the decision in this case is the first occasion what in any common law jurisdiction that the Samuel Keller/Mobil Oil principle has not been applied in a case that falls four square within the factual matrix of cases such as Samuel Keller, Inglis and Skelton. It is not in the interest of the common law jurisdiction in Fiji for this to happen.
38. It is not in the interest of Fiji for the law to be changed in this way because Fiji needs bank and financial institutions whether from Fiji or from overseas to be able to make loans secured on property. In many cases such loans are instrumental and successful in saving businesses on the edge of collapse or of ensuring profitable development where otherwise there would be a shortage of capital and finance. Some of the time the business plan of the debtor and mortgagor fails. In that situation the mortgage security must fall into the bank or financial institution within the law quickly and without being clogged and delayed by court actions that are not within the framework of law applicable to such securities.
39. Now it is open to the Courts to extend the situations in which an interim injunction will be available in the discretion of a judge of the High Court. In Mareva Compania Naviera SA v. International Bulk Carriers SA [1980] 1 AER 213 there was extension to preserving assets of the Defendant so as to assist post judgment execution. In Anton Pillar KG v. Manufacturing Processes Ltd [1976] Ch.55, there was extension to discover and preserve evidence by a mandatory injunction to enter the Defendants premises to inspect and remove goods and other items as evidence usually where there is a claim of breach of copyright.
40. But in American Cyanamid v Ethicon (supra) Lord Diplock did not extend the existing categories or situations in any way. Lord Diplock was concerned in a patent case where there was a threatened continuing breach of a proprietary right of the Plaintiff by the Defendant. Lord Diplock was only concerned with the principles on which interlocutory restraint in such cases should be granted. His judgment was in no way concerned with extending the situations where an interim injunction will be available.
41. On the facts of the present case there is no threatened breach of an existing and established proprietary or other legal right. All that Gulf put forward were claims that might at a future time (with minimal chance of success) result in final adjudication of legal rights in their favour. In law there is no basis in this case for invoking the interim injunction jurisdiction. Particularly in the context of well settled rules supportive of the efficacy of commercial lending prior to the present case. It does not make it right that this error concerning the scope of American Cyanamid started in Fiji. Fortunately the result in these cases was that the rule that was perceived to be the rule in Inglis case always prevailed.
42. Before leaving the issue of when an interlocutory interim quia timet injunction is appropriate I would wish to refer to the judgment of the English Court of Appeal in Bryanston Finance v. de Vries (No.2). The case concerns injunctions to restrain abuse of process in the limited field of company winding up petitions which is special statutory jurisdiction of the High Court. There is clear authority that a motion to restrain the publication of the statutory advertisement seeking creditors to join the list or other proposed restraints on the creditor's petition, can be made in the statutory proceedings themselves (In re a Company [1894] 2 Ch.240) or by way of a separate action. Bryanston is an example of proceedings being taken by way of a separate action. The Plaintiff Bryanston Finance had obtained an interim injunction at first instance before Oliver J restraining Mr de Vries from issuing a winding up petition. The Court of Appeal consisting of Buckley L.J., Stephenson L.J. and Sir John Pennycuick agreed that this interim injunction would be fatal to Mr de Vries bringing his petition which had a good chance of success and it was discharged. The majority took the view that Lord Diplock's speech in American Cyanamid was confined and did not extend beyond the granting or refusing of interim interlocutory quia timet injunctions.
43. For the majority Stephenson L.J. explained at page 79:
"I agree with the judgment of Buckley L.J. and add my own explanation why I think that the order in the second action was wrong. There, in my opinion, Oliver J attempted to do an impossible thing: to decide on the balance of convenience whether there is an abuse of the process; (2) the court's jurisdiction to help a would-be litigant by preventing another from taking some action which is alleged to be in violation of the litigant's legal right until the court has decided whether he has that right and whether it has been or will be violated. Completely different considerations apply to the two cases. In the first it is for the plaintiff to prove that the defendant's exercise of his right to bring legal proceedings is in fact an abuse of process. In the second it is for the plaintiff to prove that there is a serious issue to be tried in his action, not the defendant's and that it is convenient that the court should intervene to restrain the defendant before it is tried."
44. Sir John Pennycuick, in line with this further explained at page 81:
"The decision in the American Cyanamid case was, as I understand it, addressed to the interlocutory motions in the sense of motions seeking interim relief pending determination of the rights of the parties at the hearing at the hearing of the action: cf. per Lord Diplock. He said, at p.405: "The grant of an interlocutory injunction is a remedy that is both temporary and discretionary. And at p.406:
'When an application for an interlocutory injunction to restrain a defendant from doing acts alleged to be in violation of the plaintiff's legal right is made upon contested facts, the decision whether or not to grant an interlocutory injunction has to be taken at a time when ex hypothesi the existence of the right or the violation of it, or both, is uncertain and will remain uncertain until the final judgment is given in the action.'
I do not think that the decision should be read as applicable to motions which, though interlocutory in form, seek relief which will finally determine the issue in the action and more particularly motions seeking to stop proceedings in limine. I appreciate the wide words used by Lord Diplock, at p.406:
'In my view the grant of interlocutory injunctions in actions for infringement of patents is governed by the same principles as in other actions.'
But these words must be read in their context and I am sure Lord Diplock was not intending to say that the principles were applicable in a class of case not under consideration in which their application would be entirely inappropriate."
45. Even if this had been a case where the legal framework governing quia timet interim injunctions is applicable, the evidence in respect of some counterclaim or equitable set off has to exist to an appropriate standard.
46. In this case there was said to be fraud on the part of Strategic. The borrower Oceania International Limited (New Zealand) did not so allege or support a case of loss or damages caused by fraudulent or innocent misrepresentation on the part of Strategic.
47. The Statement of Claim and the affidavit in support on behalf of Gulf do not contain any evidence which support or particularise fraud or misrepresentation in view of the tightly written formal agreements of loan of guarantee and of mortgage. Gulf was not a party to the loan agreement. But Gulf was aware of all the terms and conditions of the loan agreement. It was aware that the documentation including the loan agreement in the intention of all the parties to the various documents was a stand-alone package to which parole evidence of negotiations or preliminary agreements or of representations would not be admissible. The documents clearly express the intention of the parties including Gulf and in these circumstances there is nothing in the background that can add to or detract from the plain meaning within the documents. Fraud as Lord Denning said in Associated Leisure v. Associated Newspapers Ltd [1970] 2 QB 450 at 456 with regard to when fraud, or justification in a defamation action must not be placed on the record.
"I have always understood such to be the duty of counsel. Like a charge of fraud, he must not put a plea of justification on the record unless he has clear and sufficient evidence to support it."
In addition fraud must be pleaded with full particularity.
48. There is no evidence of fraud pleaded in this case that would satisfy even an evidential burden on the part of the Plaintiff. While for reasons explained above "serious question to be tried" is irrelevant in this case, if it were otherwise, there is nothing in the Statement of Claim and supporting affidavit evidence that would come close to being sufficient for finding that what is pleaded and sworn raises a serious question to be tried.
49. In respect of a claim that the Reserve Bank of Fiji imposed conditions that were not complied with, the evidence is similarly weak to non-existent. Neither the lender (Strategic) nor the borrower Oceania International (New Zealand) support any such claims. There is no evidence from the Reserve Bank of Fiji that it regards either the lender or the borrower or any other party to the documentation to be in breach of conditions made by the Reserve Bank concerning when the loan may be made and repaid, or conditions that would apply if the agreed mortgage securities had to be sold in event of default by the borrower under the third party mortgage.
50. There is no evidence other than that the monies claimed by Strategic were paid by Strategic. There is no doubt about the default. It is unlikely in such circumstances that any court in Fiji or elsewhere would allow the lender to lose his money or his security on the basis of regulation of capital inflows and outflows laid down by the statutory authority not being complied with. In any event Strategic have given evidence by producing the relevant correspondence from the Reserve Bank of Fiji. Nothing therein supports Gulf's claim that in the view of the Reserve Bank of Fiji conditions were not complied with. While serious question to be tried is irrelevant in this case, this part of the Plaintiff's evidence wholly fails to pass the test.
51. In summary:-
(1) This is an attempt to set off and counter claim against the right of sale of the third party mortgagee. As such the Samuel Keller/Inglis/Mobil Oil/National Westminster Bank line of cases is dispositive of the issue.
(2) The only injunctive relief available pending trial is on payment into court of New Zealand $5,811,616.27. If they do that Strategic will be restrained until the judgment in the High Court Action No.153 of 2009. This does not derive from the law of interim quia timet injunctions. It derives from a minor change to the Samuel Keller rules first put forward by the High Court of Australia in Harvey v. Mc Watters [ 1948] 49 SR (NSW) and was applied in a mortgage of real property in Inglis.
It provides protection for the mortgagee pending resolution of counterclaim and equitable set off. The mortgagee is assured that the mortgage debt is secured with interest while the counterclaim or equitable set off is played out to a conclusion.
The price to the mortgagor is a high one if he does not have liquid assets and is impecunious with his only significant assets tied up in the mortgaged land.
(3) This is not a quia timet situation where there has to be in the Plaintiff an existing proprietary or other legal right under threat by the actions of the Defendant. The law of quia timet interim injunctions does not apply.
(4) Given if the law of quia timet interim injunctions applied, the Plaintiff in this case has failed to produce evidence that would satisfy the requirement that his statement of claim and affidavit evidence must demonstrate on the basis of evidence that there are serious questions to be tried. Bare assertion is not evidence and must not be treated as such.
52. For the reasons articulated above I would allow the appeal in this case. I propose that the orders in the High Court should be vacated. In their place this court should order an injunction restraining sale limited in time to 28 days from the date of handing down of this judgment. If Gulf Investments (Fiji) Limited within the 28 days pays into court a sum of Fijian Dollars which is the equivalent of NZ$5811616.27 at median inter bank exchange rates applicable on the day in which the money is paid into court, this court should injunct the Appellant Strategic Nominees Limited (In Receivership) from exercising its power of sale arising from its mortgages over the land in question until judgment is given in Civil Action No.HBC 153 of 2009. If the money is paid into court it should be invested in an interest bearing account. Since the reality is that the first instance decision is substantially overturned the Respondent Gulf Investments (Fiji) Limited should pay the costs in the court below of Strategic Nominees Limited (now in receivership) the Appellant and first Defendant in the Court below assessed at $3000 and the costs in the Court below of Bayley's Real Estate (Fiji) Limited being 4th Defendant in the Court below assessed at $1000. In the Court of Appeal the Respondent (Plaintiff in the Court below) Gulf Investment (Fiji) Limited should pay the costs of Appellant (First Defendant in the Court below) assessed at $3000. As was ordered in the Court below costs should be paid within 14 days.
Kankani T. Chitrasiri, JA
53. I agree with the judgment and the reasoning and the proposed orders of William Marshall JA.
Izaz Khan, JA
The Orders of the Court
54. The orders of the Court are:
(1) The orders in the Court below are set aside.
(2) The Appellant (First Defendant in the Court below) Strategic Nominees Limited (In Receivership) be restrained from exercising their power of sale as mortgagee over Gulf Investments (Fiji) Limited's Crown Lease No.16928 and the Native Lease comprised in Special Tourism (Development) Lease executed on 28th February 2005 and registered with the Registrar of Deeds for a period of 28 days from the date of this judgment.
(3) The First Respondent Gulf Investments (Fiji) Limited do pay into Court within 28 days a sum of Fijian dollars equivalent to NZ$5,811,616.27 calculated at the median inter bank exchange rate applicable on the date of payment into Court, if they wish the injunction in Order (2) to be extended until the date of judgment in Civil Action No.HBC 153 of 2009.
(4) If the First Respondent, Gulf Investments (Fiji) Limited pay into Court all the monies required by Order (3) above within 28 days from the date of this judgment, and not otherwise, the Appellant Strategic Nominees Limited (In Receivership) be restrained as in Order (1) from the day when the 28 days ordered in Order (2) expires until the date of judgment in Civil Action No. HBC 153 of 2009.
(5) That all money paid into Court be placed into an interest bearing account.
(6) That the First Respondent Gulf Investments (Fiji) Limited do pay the costs in the High Court of the Appellant, Strategic Nominees Limited (now In Receivership) assessed at $3000 within 14 days and the costs in the High Court of the Fourth Defendant Baileys Real Estate (Fiji) Limited assessed at $1000 within 14 days.
(7) That the First Respondent Gulf Investments (Fiji) Limited do pay the costs of this appeal assessed at $3000 to the Appellant Strategic Nominees Limited (In Receivership) within 14 days.
Hon. Justice Izaz Khan
Justice of Appeal
Hon. Justice William R. Marshall
Justice of Appeal
Hon. Justice Kankani T. Chitrasiri
Justice of Appeal
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